IKEA pushes into South America with partner Falabella

Reuters Staff

4 Min Read

STOCKHOLM (Reuters) - IKEA [IKEA.UL] will open its first stores in South America under a franchise agreement with Chilean retailer Falabella FAL.SN, as the world’s biggest furniture retailer looks for new growth markets to keep challengers at bay.

FILE PHOTO: The company's logo is seen outside of an IKEA Group store in Dietlikon, Switzerland October 11, 2016. REUTERS/Arnd Wiegmann/File Photo

The Swedish firm is responding to slower sales growth by pushing into new markets like India while developing smaller city center store formats.

It is also investing in its online services to adapt to the surge in e-commerce and home delivery which has dulled the appeal of its out-of-town warehouse stores.

IKEA’s aim is to boost its customer base to 3.2 billion in 2025 from around 1.2 billion today, in stores and online.

It wants to open at least nine stores in Chile, Colombia and Peru over a period of 10 years and will sell through online sales channels in the three countries, IKEA said late on Thursday.

Inter IKEA Group Chief Executive Torbjorn Loof said South America is one of IKEA’s key future growth markets. He said Chile, Peru and Colombia, with a combined population of almost 100 million people, had a market potential for home furniture of more than 8 billion euros ($9.4 billion).

Loof said that while IKEA’s franchise partner Falabella will invest $600 million, entering South America will not come with any “physical investments” for IKEA, which will contribute mainly with staff, support and know-how.

The logo of IKEA is seen above a store in Voesendorf, Austria, April 24, 2017. REUTERS/Heinz-Peter Bader

“We will bring to the three countries the full experience of IKEA, with stores and online sales such as those already existing in Europe, the United States and Asia,” Sandro Solari, CEO of Falabella, said in a statement.

“IKEA will complement the current offer of products and services of our home improvement subsidiary Sodimac.”

The first store is expected to open in the city of Santiago at the end of 2020, with Lima and Bogota to follow, but the company is looking at several markets in South America, Loof said, declining to give any sales targets.

“Giving an exact figure is always hard. These are new countries and new markets,” he told Reuters.

NEW CHALLENGES

IKEA Group, whose founder Ingvar Kamprad died in January at the age of 91, last year grew retail sales by 4 percent to 34.1 billion euros.

Inter IKEA is the brand owner and franchisor while IKEA Group is the biggest franchise owner with 363 stores in 29 markets, out of a total of 418 stores in 49 markets.

For all of Inter IKEA Group’s franchises, Loof said he was expecting sales to grow by 5-6 percent this year from 38.3 billion euros ($45 billion) in 2017 or 5.2 percent growth.

IKEA’s rivals span e-commerce sites like Germany’s Home24 and U.S. giant Amazon to store chains such as Britain’s Argos and France’s Conforama.

Home24, one of its newer challengers, announced a stock market listing on Friday and is pushing into Brazil, as yet untapped by its much bigger rival.

IKEA said last year it would run tests in 2018 of selling its goods through third parties.

Loof said negotiations with third parties were ongoing, and he expects to be able to say more later this year.

“If everything goes as planned it could be this year. It could also take until next year. But we are optimistic and working hard,” he said.

Such a move would mean IKEA’s customers may soon be able to buy its flat-pack furniture and other home furnishings through the likes of Amazon (AMZN.O), which has said it plans to venture into furniture, or Chinese rival Alibaba (BABA.N).